What gives rise to the difference in the aggregate demand for a nontrading or closed economy from a trading or open economy?

In a closed economy, there is no trade between domestic firms and foreign entities. Therefore, net exports are zero, and the aggregate demand equation is simplified to the sum of consumption, investment, and government spending. Aggregate Demand (closed) = Consumption + Investment + Government Spending

In an open economy, there are exports and imports between domestic firms and foreign entities. The aggregate demand equation includes net exports (exports minus imports) as a component. Aggregate Demand (open) = Consumption + Investment + Government Spending + Net Exports

From the two equations mentioned above, we can easily infer that the primary factor contributing to the difference in aggregate demand between closed and open economies is the presence or absence of net exports. In a closed economy, there are no international trades, whereas in an open economy, exports and imports play a vital role in determining the level of aggregate demand. Exports add to aggregate demand, while imports subtract from it. Other related factors include: - Exchange rates: In an open economy, exchange rates can influence the level of net exports, which in turn have an impact on aggregate demand. A depreciation of the domestic currency makes the export goods relatively cheaper, boosting exports and aggregate demand, while an appreciation of the domestic currency yields the opposite effect. - Trade policies: Trade policies, such as tariffs or import quotas, can affect the level of imports and exports and thus impact the aggregate demand in an open economy. - Global economic conditions: The economic condition of trade partners also alters the demand for the imports and exports of goods and services, which affects aggregate demand in an open economy. In the case of a global recession, for instance, demand for exports from an open economy may decrease, thus lowering the aggregate demand in that economy. To summarize, the main difference in aggregate demand between closed and open economies arises due to the presence or absence of international trade (net exports). Some factors like exchange rates, trade policies, and global economic conditions also play a role in shaping aggregate demand in open economies.